YouSaid · the spoken record

William Sharpe

lines on the record: 157
first: 2017-06-02
most recent: 2017-06-02
sittings or episodes: 1
sources: podcast

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“Well, you know, I happen to know, I found out who the referee was, and his argument was, well, that's an unrealistic assumption. And I was taught by Milton Friedman indirectly and others that you don't. Evaluate a theory of that sort on the assumption, you evaluate it on the conformance of the results. The real world because theories always make assumptions. Right.”
2017-06-02 · Masters in Business · Interview With William Sharpe: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“The latter, and then I finished the dissertation in June and then started teaching the University of Washington in September. Anna, you know, I'd written up the algorithm for a paper, and I was saying, this is really a nifty result, this beta expression. Equilibrium result, but it's sort of like okay, I pulled a rabbit out of a hat, but I put it in beforehand with this single index model assumption. And I said, boy, it would be nice if I could get that beautiful answer without making this assumption which almost directly created the answer. So I noodled around and talked to colleagues and thought of it. And then all of a sudden, within two or three, four months said, wait a minute, I don't have to make that assumption. I can get that result in a general situation. And at that point, that was the capital asset pricing model.”
2017-06-02 · Masters in Business · Interview With William Sharpe: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“That was my assumption. Turned from what should you do normative to how might the world work positive theory, which is what economists that time in particular generally did, and said, well, if everybody did this and markets cleared and prices adjusted, what would be the relationship in equilibrium between expected returns on securities and some measure of risk? And the conclusion was, and again, this was positing this single index model, conclusion was that the thing, the common factor that would matter would be the market portfolio. And that's when the term beta came to be, and that expected returns would be related only to betas in a linear manner for that matter.”
2017-06-02 · Masters in Business · Interview With William Sharpe: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“And so I worked with him to try to get him to make probabilistic forecasts for a group of securities. And then we ran them through the algorithm to see what it implied. And then the third, I did what my training as a microeconomist, which was most of my training, would cause me to do. What if everybody did this? What if everybody did what Harry said? What would the world look like?”
2017-06-02 · Masters in Business · Interview With William Sharpe: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“And I hope I'm recalling correctly. In his version, this was just, oh, you might want to make this simple assumption. And there were a couple of other authors that were writing with that same kind of structure. There was no sense this would be the market portfolio. A thing a single index But so what I did was I took that concept and I did three things in the dissertation. One was I wrote a computer algorithm that could take advantage of that simplified structure and find efficient portfolios for orders of magnitude, less computer time than if you expanded it to the full structure. So the first part of the dissertation was an algorithm and a Fortran program, probably the first dissertation in economics at UCLA that included programs. The second Fred Weston had a friend who was an investment advisor, a real human investment advisor.”
2017-06-02 · Masters in Business · Interview With William Sharpe: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“Precisely. So, a whole lot of numbers, and he had a procedure to find a so-called set of efficient portfolios given that set of numbers. And it took big computer, a lot of time, a lot of money to do it. He also in his work had suggested you might simplify the relationships among securities. And he proposed a number of versions, one of which was, well, you could say General Motors moved with the market to a certain extent, General Foods moved with the market to a certain extent. Each of them had movements on their own and leave it at that. In other words, a very simple model in which there was one single index, let's call it the market for now, which created all the correlation, all the among securities”
2017-06-02 · Masters in Business · Interview With William Sharpe: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“It will be a lot shorter than the dissertation. Harry Markowitz's work was what we would call normative in the sense that he was asking the question. A portfolio manager, there are securities, there's a client. How do you build a portfolio that's good for the client? And in his structure, he allowed for not only estimates of the expected return on General Motors, let's say the risk of general motors stock, but also the extent to which General Motors would move with Ford, with General Foods, et cetera. A whole lot”
2017-06-02 · Masters in Business · Interview With William Sharpe: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source